Elizabeth Warren: Why We Need a Consumer Financial Protection Agency

Elizabeth Warren, Harvard law professor and chairwomen of the Congressional Oversight Panel, has been credited with the idea for creating a Consumer Financial Protection Agency (CFPA). She recently offered a helpful Q&A about why we need a new agency to protect consumers from dangerous financial products.

Last year, the Senate tapped Elizabeth Warren to head the panel overseeing the Emergency Economic Stabilization Act (aka the financial system bailout). She has also been a driving force in the call for a federal agency to protect consumers from dangerous financial products (much like they are protected from dangerous physical products by the Consumer Products Safety Commission).

Warren began calling for such a new agency in 2007, with her article "Unsafe at Any Rate." Now, with portions of the financial industry (and their lobbyists) mounting increased opposition to any such new protections, Professor Warren sat for a very helpful Q&A discussing why additional protections are needed and what they might look like. She summed up why consumers need protection in 5 words: The credit market is broken.

Warren breaks down the need for more protection into three main points:

Consumers can't compare different financial products (credit cards, loans, etc.) because the terms have become utterly convoluted. If a 30 page credit card agreement poses problems for a Harvard contract law professor, the rest of us stand little chance of actually comprehending all of its terms and how they compare to other cards.

If consumers can't compare products, there can't be any real innovation in financial products. Opponents of financial regulation often trot out the argument that new rules will stifle "innovation." If "innovation" means something beyond new ways to line big bank and credit card company pockets, consumers have to understand the differences between the various products on the market. Right now they can't.

Too much risk is getting into the system. As the financial collapse has shown, risky consumer financial products and mortgages cause rippling effects. At the end of the day, everyone is affected.

As Professor Warren explains, big banks and their lobbyists have a war chest to fight the creation of a CFPA. From her point of view, this is similar to their attempt to fight the creation of regulations we've come to know and trust, like FDIC insurance to name just one.